Miguel Otero-Iglesias is a senior analyst at the Elcano Royal Institute in Madrid.
MADRID — Watching Europe’s north squabble with its south over how to mitigate the fallout from the coronavirus epidemic, I am torn between two minds.
I mean this literally. One is Spanish, because my parents are Spanish and I feel Spanish. The other is Swiss, because I grew up in Basel, and sometimes I think like a Swiss, which allows me to understand the mindset of the Germans and the Dutch.
This has proved useful. It gives me insight into both sides of a heated debate — the weaker South, which wants more solidarity from its stronger neighbors, and the frugal North, weary of being put on the hook for money being mismanaged elsewhere.
Ever since last week’s European Council meeting ended in acrimony — with Italy and Spain calling for the creation of corona bonds to mutualize debt, and Germany and the Netherlands saying, yet again, nein — my internal monologue has reached a fever pitch. Who is right?
What follows is a conversation between these two opposing camps: Miguel, the Spanish me, and Michael, the Swiss me (though please pronounce it in the German, not the English, way).
* * *
Miguel: Michael, this is war. COVID-19 is killing hundreds of us every day and we need to fight this off together. Surely this is the time to issue joint debt like the Americans do. This is our “Hamilton” moment. If not now, when?
Michael: Hang on. Yes, it’s true that hundreds are dying (and this is dramatic) and we need to band together, but let’s calm down for a moment and think this through. First of all, we need to know why there are so many deaths in your country and what lessons we can draw from this. I have been telling you for years that you must prepare better for the next crisis, and here you are again asking for help.
Miguel: What? You’re crazy. This is no time for morality lessons. This epidemic is a natural disaster no one saw coming. We don’t have time to analyze past mistakes. People are dying. You do not sit down to discuss why the house is on fire amid the flames. You call the firefighters!
Michael: And we have called them, Miguel. The European Central Bank is out with the hoses and we have temporarily suspended the fiscal deficit limits of the EU’s Growth and Stability Pact. Germany has even abandoned its schwarze Null orthodoxy. The firefighters are on it, the question is now how we reconstruct.
Miguel: Well, that reconstruction needs to start right away — by sending a strong signal to the markets and our populations that we are in this together. Issuing corona bonds together would do precisely that.
Michael: I disagree. It seems to me that you are using this moment of crisis to convince me of something I told you many times that I will not do, which is to create a transfer union that’ll channel money from wealthy countries to poorer ones against the will of my people. Why don’t we focus on the things that matter to win the war and come out from it stronger: medical equipment; coordinating our fiscal policies to alleviate the pain felt by workers and companies; preparing ourselves for life after quarantine.
Miguel: But Michael, for that you need money! And if we raise money together it will be cheaper. Let’s use the privilege that the euro is the second most important international currency. Let’s think strategically.
Michael: OK, fine. Let’s use the issuance capacity of the European Stability Mechanism. We can raise up to €400 billion together. But if you need the money there needs to be conditionality. We need to know why you got into trouble and how you will use this money to avoid another situation like this.
Miguel: What? Conditionality? What kind of heartless person are you? Our people have no responsibility in this crisis. And now you want to punish them? Don’t you have the tiniest sense of solidarity? Of empathy? You are one of the countries that benefits the most from the single market and the single currency. You siphon away key resources for my state by practicing fiscal dumping. I have to tell you, if you don’t want to help me now, this partnership is not worth its name.
Michael: Of course I believe in solidarity. But my definition of solidarity is different from yours. I don’t believe in subsidies. I believe in self-help, in giving you a helping hand so that you can stand on your own two feet. You know the saying: Give a man fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.
Miguel: Oh, please. Stop being so patronizing. What’s next, the fable of the ant and the grasshopper? I’m sick of it. You know perfectly well that there are poor and strong regions everywhere — the same is true within your own country. This is about the strong helping the weak, something that is supposed to be a European value. You know that the euro cannot survive in the long run without a fiscal and political union. Let’s stop the charade.
Michael: Look, maybe one day there will be eurobonds. But first we need to integrate further. You cannot create the equivalent of a European treasury bond without having a treasury first, and you cannot have a treasury without having a democratic mandate to so. If you want to mutualize risks by issuing debt together, we need to mutualize 1. the control of how this new money will be spend, and 2. the revenue capacity to pay our debts back. If I agree to issue debt together, you must agree to have European tax collectors in your country, to give up some of your fiscal sovereignty.
Miguel: Now you’re the one with the fanciful visions! Let’s try to find a compromise. Let’s issue corona bonds together (for a certain amount and time limit, as you want), but we’ll call them “revival bonds.” They’ll be used for the reconstruction phase after this bloody war ends and, OK, I can accept that there will be a certain amount of monitoring to ensure the money is being used correctly. We can use the ESM framework, but there will not be a memorandum of understanding. There will be “revival plans” and they will be co-owned. We cannot repeat the Troika disgrace of the last crisis. Creditors cannot impose their will.
Michael: OK, but this can’t just be money for a revival, to fill a temporary gap. It needs to be used to make countries stronger for the future in a highly competitive world. We need to tackle some of the structural problems too. We can use the EU’s annual country reports as a reference point, and there needs to be proper enforcement.
Miguel: Fine. Again, it’ll fall on me to adjust, but in exchange you have to agree to convert the ESM into a European institution, with qualified majority voting and the supervision of the European Parliament. This needs to be the embryo of a European treasury, because as you know the ESM’s lending capacity of €400 billion is not really a lot of money.
Michael: Do you agree to have a European tax to finance these revival bonds with certain control by Brussels on its payment?
Miguel: Yes.
Michael: OK, we might have a deal. But I will need to get approval from my parliament.
Miguel: You must be joking! (Sigh.) Go get it, the future of Europe is at stake.